Why Governments Worldwide Are Moving to Regulate Stablecoins as Core Payment Instruments

New Delhi: Stablecoins are no longer treated by regulators as a marginal crypto phenomenon. With global circulation more than doubling from roughly $120 billion in late 2023 to over $300 billion by late 2025, their expanding role in payments and remittances has drawn the attention of policymakers worldwide.

This is why global institutions have sounded consistent warnings. Bodies such as the BIS, IMF, Financial Stability Board (FSB) and FATF have been clear that stablecoins, if allowed to grow without adequate safeguards, can weaken monetary policy, fragment payment systems and amplify financial stress. The regulatory response, across countries and political systems, has therefore coalesced around a simple idea: similar risks must be governed by similar rules.

The United States moved decisively in this direction with the GENIUS Act of 2025, its first comprehensive law on stablecoins. The message is straightforward. Only insured banks and federally authorised entities can issue payment stablecoins. These must be fully backed, one-to-one, by cash or short-term Treasury securities and remain subject to audits, redemption guarantees and anti-money laundering requirements. Perhaps most importantly, the law abandons the notion that stablecoins are just another technology product. Instead, it treats them for what they have become — payment instruments with systemic consequences.

Europe has taken an even firmer stance. The European Union’s Markets in Crypto-Assets (MiCA) framework, now fully in force, places stablecoins squarely within the financial regulatory perimeter. By classifying them as asset-referenced or e-money tokens, MiCA subjects’ issuers to licensing, strict reserve rules and continuous supervision. Large stablecoins that pose systemic risks face additional limits. The signal from Europe is unmistakable: innovation will be encouraged, but not at the expense of consumer protection or monetary stability. The European Central Bank’s parallel work on a digital euro reinforces a deeper point — states are unwilling to leave the future of money entirely in private hands.

China’s approach follows a different path but reflects the same underlying concern. Its central bank digital currency, the e-CNY, has moved into an advanced phase, with transaction volumes growing by more than 800% since 2023 and cumulative usage crossing $2.3 trillion. To widen adoption, authorities are experimenting with interest-bearing and stablecoin-like features within China, while pushing cross-border use through platforms such as Project mBridge. Together, these steps reveal Beijing’s intent to anchor the digital yuan firmly within both domestic payments and international settlement systems.

Other Asian financial centres have chosen cautious inclusion. Japan allows only bank-linked stablecoins under its payments law. Singapore, meanwhile, offers an opt-in “MAS-regulated stablecoin” label that comes with exceptionally high standards on reserves, disclosure and governance. Both jurisdictions accept that stablecoins can bring efficiency gains — but only if they operate within the existing financial architecture.

Hong Kong’s Stablecoins Ordinance of 2025 fits this broader regional trend. By mandating licensing for all fiat-backed stablecoin issuers, it marks a clear shift away from open-ended experimentation towards structured oversight.

In the Gulf, the United Arab Emirates has drawn one of the sharpest regulatory lines. Only dirham-backed stablecoins are permitted for domestic use, effectively excluding foreign-pegged coins from local payment systems. In parts of Latin America and Africa, the regulatory lens is shaped by macroeconomic vulnerability. Brazil has introduced reporting requirements and foreign exchange controls on stablecoin transfers, acknowledging their growing role in capital flows and informal dollarisation. Nigeria and several others remain wary, preferring central bank digital currencies or tightly supervised intermediaries over private stablecoins that could weaken domestic currencies.

What ties these national approaches together is an unusual degree of international coordination. The FSB’s global recommendations, the IMF’s cautions on volatile capital flows and the BIS’s repeated critiques of stablecoin fragility have all fed directly into domestic lawmaking. FATF’s travel rule has further ensured that stablecoin transactions no longer operate beyond the reach of anti-money laundering enforcement.

The striking feature of this moment is not regulatory fragmentation, but convergence. Across regions, governments are settling on three non-negotiable conditions: full reserve backing, licensing and supervision, and enforceable redemption rights. Stablecoins are not being banned. They are being absorbed into the financial system — but firmly on the state’s terms.